ESSENTIALS OF

TREASURY
EssEntials of

trEasury MANAGEMENT
ManagEMEnt FOURTH EDITION
fourth Edition

CtP Body of KnowlEdgE

Table of Contents
thE gloBal standard in CorPoratE trEasury
ESSENTIALS OF
TREASURY MANAGEMENT
FOURTH EDITION

Table of Contents

PART I PART II
Introduction to the Study of The Treasury Management
Treasury Management Environment

INTRODUCTION CHAPTER 2:
I. Introduction REGULATORY AND LEGAL
II. The Evolving Role of the Treasury
ENVIRONMENT
Professional I. Introduction
III. Organization of Essentials of Treasury II. General Regulatory Environment
Management A. General Types of Financial Institution (FI)
IV. Summary Regulations
B. Issues Affecting Financial Regulation

CHAPTER 1: III. Primary Regulators and Standard Setters

THE ROLE OF TREASURY
MANAGEMENT
I. Introduction
II. The Role and Organization of Treasury
Management
A. Overall Goal and Objectives
B. T reasury Operations/Cash Management
C. Bank Relationship Management
D. R eporting and Information Sharing
III. Finance and Treasury Organization
A. F inancial Professionals in an Organization
B. Treasury Organizational Structure
IV. Corporate Governance
A. T he Challenges of Corporate
Governance
B. R
 ole of the Board of Directors in Treasury
Operations
C. Role of Independent Directors
V. Summary
of Global Financial Markets
A. Central Banks
B. Financial Stability Board (FSB)
C. Bank for International Settlements (BIS)
D. Basel Committee on Banking Supervision
(BCBS)
E. European Payments Council (EPC) and
SEPA
F. E uropean Securities and Markets
Authority (ESMA)
G. International Association of Deposit
Insurers (IADI)
H. International Organization of Securities
Commissions (IOSCO)
I. Financial Action Task Force (FATF)
J. International Association of Insurance
Supervisors (IAIS)
IV. U.S. Legal and Regulatory Environment
A. Regulatory Agencies
B. U.S. Legal Environment

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V. Tax Considerations CHAPTER 4:

A. Unitary Taxes and Foreign Tax Credits PAYMENT SYSTEMS
B. Capital Tax I. Introduction
C. Asset Tax and Turnover Tax
II. Payment Systems Overview
D. Withholding Tax
A. Basic Payments
E. Sales and Use Tax
B. The Payment Process
F. Other Taxes
C. Settlement versus Finality
VI. Bankruptcy (Insolvency) Laws D. Types of Payments
A. C  ritical Issues in a Business Bankruptcy
III. Cash Payments
Decision
B. Bondholders’ Rights IV. Check-Based Payments
C. Shareholders’ Rights A. On-Us Check Clearing
D. Types of Bankruptcy in the U.S. B. Transit Check Clearing
E. F ormal versus Informal Bankruptcy C. Foreign Checks
Procedures D. Endpoints
VII. Summary E. Deadlines and Deposit Timing
F. Availability Schedules
Appendix 2.1: SEPA Member States
G. Balances and Float
H. Other Check-Processing Factors That
CHAPTER 3: Influence Availability
BANKS AND FINANCIAL I. Additional Paper-Based Instruments
INSTITUTIONS V. Large-Value Electronic Funds Transfer
I. Introduction (EFT)/Wire Transfer Systems
II. Financial Institutions: Functions and A. Real-Time Gross Settlement (RTGS)
Services Systems
A. Global FIs B. Clearing House Interbank Payments
B. Commercial Banks System (CHIPS)
C. Investment Banks and Brokerage Firms C. TARGET2 and the Single Euro Payments
Area (SEPA)
D. Credit Unions
D. Continuous Linked Settlement (CLS)
E. Special Purpose Financial Institutions
E. Society for Worldwide Interbank Financial
III. Summary Telecommunication (SWIFT)

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VI. Small-Value Transfer or Automated CHAPTER 6:

Clearinghouse (ACH) Systems CAPITAL MARKETS
VII. Card-Based Payment Systems I. Introduction
A. Credit Cards
II. Overview of Capital Markets
B. Debit Cards/EFTPOS
A. The Basics
C. Other Varieties of Payment Cards
B. Key Participants
D. P ayment Card Industry Data Security
C. Division of the Capital Markets
Standard (PCI DSS)
D. Security Exchanges and Over-the-
E. Merchant Card Fees
Counter (OTC) Markets
VIII. Summary
III. Debt Market
A. Medium- and Long-Term Borrowing
CHAPTER 5: B. Other Factors in Using Debt as a Source
MONEY MARKETS of Capital
I. Introduction IV. Equity (Stock) Securities
II. Global Money Markets A. Common Stock
A. Money Market Participants B. Preferred Stock
B. Investment Risk Considerations C. Hybrid Securities
C. T ypes of Money Market Instruments and D. Depositary Receipts (DRs)
Investments V. Summary
III. Short-Term Money Markets in the Appendix 6.1: Listing of the World’s Top 10
United States Stock Exchanges
A. P rocessing and Clearing of Short-Term
Investments in the U.S.
CHAPTER 7:
B. U.S. Money Market Participants
RELATIONSHIP MANAGEMENT
C. U .S. Federal Agency and Government-
AND VENDOR SELECTION
Sponsored Enterprise (GSE) Securities
D. M unicipal Notes, Variable Rate Demand I. Introduction
Obligations (VRDOs) and Tax-Exempt II. Relationship Management
Commercial Paper (CP) A. Number of Bank Relationships
IV. Summary B. Documentation
C. Performance Measurement and
Evaluation

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III. Vendor Selection and the Request for PART III

Proposal (RFP) Process
Working Capital Management
A. Getting Started
B. RFP Design CHAPTER 8:
C. RFP Administration INTRODUCTION TO WORKING
IV. Bank Compensation Practices CAPITAL MANAGEMENT
A. Billing for Bank Services
I. Introduction
B. Value Dating
II. Overview of Working Capital
C. A ccount Analysis in the US Commercial
Banking System A. Operating Cash Flows and Timelines
D. Comparing and Monitoring Costs among B. Float
Financial Services Providers III. The Working Capital Cash Conversion
V. Assessing Service Provider Risk Cycle (CCC)
A. A
 ssessing Operational Risk for Service A. Days’ Inventory or Inventory Conversion
Providers Period
B. A
 ssessing Financial Services Provider (FSP) B. Days’ Receivables or Receivables
Risk Conversion Period
C. Sovereign and Political Risk C. Days’ Payables or Payables Conversion
Period
D. M
 anaging Confidential Information and
Conflicts of Interest D. Calculating the Cash Conversion Cycle
(CCC)
E. Legal and Ethical Issues
E. Evaluating the Impact of Changes to the
VI. Summary Cash Flow Timeline
IV. How Changes in Current Accounts Impact
External Financing
A. Changes in Current Assets
B. Changes in Current Liabilities
C. External Financing Requirements
V. Working Capital Investment and Financing
Strategies
A. Current Asset Investment Strategies
B. Current Asset Financing Strategies

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VI. Management of Credit and Accounts C. Cost of Capital

Receivable (A/R) III. Fundamental Working Capital Metrics
A. R elationship Between Treasury and A. Current Ratio
Credit Management
B. Quick Ratio
B. Trade Credit Policies
C. Cash Flow to Total Debt Ratio
C. Billing and Collection Methods
D. Total Working Capital
D. Forms of Credit Extension
IV. Calculation of the Cash Conversion Cycle
E. Cash Application
(CCC)
F. Considerations Pertaining to Terms of Sale
A. Days’ Sales in Inventory (DSI)
G. Financing Accounts Receivable (A/R)
B. Days’ Receivables (DR)
VII. Management of Inventory C. Days’ Payables (DP or DPO- Days’
A. Elements of Basic Inventory Policy Payables Outstanding)
B. Inventory Financing Alternatives D. Cash Conversion Cycle (CCC)
VIII. Management of Accounts Payable (A/P) E. Cash Turnover
A. Disbursement System Considerations F. Days of Working Capital (DWC)
B. Types of A/P and Disbursement Systems G. Cash Conversion Efficiency
IX. Multi-national Working Capital V. Cash Discount Calculations
Management Tools A. Costs to a Buyer of Not Taking the Cash
A. Multicurrency Accounts Discount
B. Netting B. Financial Impact to a Seller of Offering a
C. Leading and Lagging Cash Discount
D. Re-Invoicing VI. Accounts Receivable (A/R) Monitoring and
E. Internal Factoring Control
F. In-house Banking A. Days’ Sales Outstanding (DSO)
G. Export Financing B. Accounts Receivable (A/R) Aging
Schedule
X. Summary
C. Accounts Receivable (A/R) Balance
Pattern
CHAPTER 9: VII. Collections and Concentration Calculations
WORKING CAPITAL METRICS A. Lockbox Cost/Benefit Analysis
I. Introduction B. Cash Concentration Break-Even Analysis
II. Basic Financial Concepts VIII. Summary
A. Time Value of Money
B. Opportunity Cost

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CHAPTER 10: E. Securities Safekeeping and Custody

COLLECTIONS, CONCENTRATION, Services
AND DISBURSEMENTS F. Investment Risk Considerations

I. Introduction III. Pricing and Yields on Short-Term

Investments
II. Disbursements
A. Factors Influencing Investment Pricing
A. Disbursement Management Products
B. Yield Calculations for Short-Term
B. Electronic Disbursement Products Investments
C. Card Payments
IV. Managing Short-Term Financing
D. O
 utsourced Accounts Payable (A/P)
A. Short-Term Funding Alternatives
Services
B. Pricing and Costs of Principal Short-Term
E. Managing Disbursement Information
Financing Sources
III. Collections
V. Debt Financing
A. Collecting Payments
A. Costs of Borrowing
B. Domestic Collection Products
B. Basic Components of Interest Rates
C. C
 ross-Border Collections and Trade
C. Base Rates
Management Products
D. Short-Term Versus Long-Term Borrowing
IV. Concentration of Funds
E. Loan Agreements and Covenants
A. Domestic Concentration of Funds
F. Credit Rating Agencies (CRAs)
B. Global Concentration of Funds
V. Summary
V. Payments Fraud
Appendix 11A: Listing of Some Major Credit
VI. Summary Rating Agencies

CHAPTER 11: CHAPTER 12:

SHORT-TERM INVESTING AND
BORROWING
I. Introduction
II. Managing Short-Term Investments
A. In-House vs. Outsourced Management of
Short-Term Investment Portfolio
B. Short-Term Investment Policies
C. Investment Strategies
D. Reporting
LONG-TERM AND CAPITAL
INVESTMENTS
I. Introduction
II. Managing Capital Market Investments
A. Objectives of Capital Market Investments
B. The Asset Allocation Decision
C. Long-Term, Fixed-Income (Debt) Portfolio
Management
D. Equity (Stock) Portfolio Management

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III. Valuation of Long-Term Securities CHAPTER 14:

A. Bond or Fixed-Income Valuation
B. Preferred Stock Valuation
C. Common Stock Valuation
IV. Summary
CHAPTER 13:
CASH FORECASTING
I. Introduction
II. Purpose of Cash Forecasting
III. Issues and Opportunities in Forecasting
A. Simplicity
B. Collaboration and Communication
C. Duplication
IV. Types of Forecasts
A. Purpose
B. Forecasting Horizons
C. Update Frequency
D. Projected Closing Cash Position
V. The Forecasting Process
A. Cash Flow Components
B. Degree of Certainty
C. Data Identification and Organization
D. S election and Validation of the
Forecasting Method
VI. Forecasting Methods
A. Short-Term Methods Forecasting Method
B. Medium-
 and Long-Term Forecasting
Methods
C. Statistical Methods in Forecasting
VII. Best Practices of Cash Forecasting
VIII. Summary
INFORMATION TECHNOLOGY IN
TREASURY
I. Introduction
II. Information Technology for Treasury
A. The Role of Information Management in
Treasury
B. Information Security
C. Types of Information Management
Technology Solutions
D.Information Management Technology
Platforms
E. Workflow Management
F. Technology Policies and Guidelines
III. Treasury Management Systems (TMS)
A. Background
B. Functionality
C. Technology Platform
D. Costs
IV. eCommerce
A. Basics of eCommerce
B. Electronic Data Interchange (EDI)
C. eCommerce Communications Standards
D. Electronic Bank Account Management
(eBAM)
E. Mobile Banking
V. Summary

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PART IV VI. Insurance Management

A. Using Insurance Contracts to Manage
Risk Management
Risk
CHAPTER 15: B. Dealing with Insurance Providers
OPERATIONAL AND ENTERPRISE C. Insurance Risk Management Services
RISK MANAGEMENT D. Risk-Financing Techniques
VII. Summary
I. Introduction
II. General Risk Management
A. The Risk Management Process
CHAPTER 16:
B. Techniques Used to Measure Risk
FINANCIAL RISK MANAGEMENT
C. Risk Profile I. Introduction
D. Risk Management Policy and Governance II. Overview of Financial Risk Management in
III. Enterprise Risk Management (ERM) Treasury
A. Market Risk A. Interest Rate Risk
B. Credit Risk B. Foreign Exchange (FX) Risk
C. Operational Risk C. Commodity Price Risk
D. Liquidity Risk D. Managing Financial Risk
E. Legal and Regulatory Compliance Risk E. The Benefits of Financial Risk
Management
F. Event Risk
G. Business Risk III. Derivative Instruments Used as Financial
Risk Management Tools
H. Strategic Risk
A. Forwards
I. Reputation Risk
B. Futures
IV. Operational Risk Management
C. Swaps
A. Internal Operational Risks
D. Options
B. External Operational Risks
E. Comparison
C. F undamental Factors for Operational Risk
Management Strategy IV. Foreign Exchange (FX) Risk Management
in Treasury
V. Disaster Recovery and Business Continuity
A. Challenges in International/Global
A. D
 eveloping an Effective Disaster
Treasury Management
Recovery (DR) Plan
B. Foreign Exchange (FX) Rates
B. Creating a Communication Plan
C. Emerging Markets
C. Implementing the Plan
D. Performing Periodic Testing

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V. Currency Derivatives Used to Hedge III. Guidelines for Creating Policies and
Foreign Exchange (FX) Exposure Procedures
A. C urrency or Foreign Exchange (FX) A. Key Control Considerations
Forwards B. Writing the Policy
B. Currency Futures C. Approval of the Policy
C. Currency Swaps D. Policy Reviews, Updates, and Revisions
D. Currency Options E. Procedure Development and
E. H
 edging Tools Available for Exotic Implementation
Currencies IV. Policy Development Example: Short-Term
VI. Interest Rate Exposure and Risk Investment Policy
Management A. The Importance of Having an Investment
A. Interest Rate Forwards Policy
B. Interest Rate Futures B. Setting Investment Objectives
C. Interest Rate Swaps C. Developing a List of Permitted
D. Interest Rate Options Investments
VII. Commodity Price Exposure D. Investment Requirements
E. Other Issues in Developing an Investment
VIII. O
 ther Issues Related to Financial Risk
Policy
Management
A. Accounting Issues V. Overview of Key Treasury Policies
B. Tax Issues Related to Hedging A. Bank Account and Financial Services
Authority Policies
C. Hedging Policy Statement
B. Payments Policy
IX. Summary
C. Collection and Concentration Policy
D. Investment Valuation and Impairment
CHAPTER 17: Policies
TREASURY POLICIES AND E. Payment Card Policies
PROCEDURES F. Outsourcing Policy
I. Introduction G. Financial Risk Management Policies
II. Overview of Treasury Policies and H. Regulatory Compliance Policies
Procedures I. Funding/Financing Policies
A. T he Role of Treasury Policies and J. Treasury Systems Policy
Procedures VI. Summary
B. W
 hy Treasury Policies and Procedures Are
Needed

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PART IV
Financial Management
CHAPTER 18:
FINANCIAL ACCOUNTING AND
REPORTING
I. Introduction
II. Accounting Concepts and Standards
A. Global Accounting Standards
B. IFRS Basic Principles
C. U.S. Accounting Standards
D. GAAP versus IFRS
III. Financial Reporting Statements
A. A
 uditing and Financial Statement
Reliability
B. Types of Financial Statements
IV. Accounting for Derivatives, Hedges and
Foreign Exchange (FX) Translation
A. Derivatives and Hedge Accounting
B. F oreign Exchange (FX) Translation
Accounting
V. Accounting for U.S. Governmental and
Not-For-Profit (G/NFP) Organizations
VI. Summary
Appendix 18.1: Listing of Selected ASC Topics
CHAPTER 19:
FINANCIAL PLANNING AND
ANALYSIS
I. Introduction
II. Cost Behavior
A. Cost Types and Behaviors
B. Operating Leverage
C. Economies of Scale
D. Financial Leverage
III. Decision Evaluation
A. Identifying Relevant Costs and Revenues
B. Cost/Benefit Analysis
IV. Developing Operating and Financial
Budgets
A. Treasury’s Role in Budgeting
B. Budgets and Financial Plans
C. The Budgeting Process
D. Uses of Budgets and Financial Plans
V. Financial Statement Analysis
A. Common-Size Statements and Ratios
B. Liquidity or Working Capital Ratios
C. Efficiency or Asset Management Ratios
D. Debt Management Ratios
E. Performance Ratios
F. Integrated Ratio Analysis
G. Service Industry Ratios
H. Strengths and Limitations of Ratio
Analysis
VI. Performance Measurement
A. Return on Investment (ROI)
B. Residual Income (RI)
C. Free Cash Flow (FCF)
D. Economic Value Added (EVA)
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VII. Financial Analysis and Rating Agencies VI. Equity Financing and Management
VIII. Summary A. Initial Public Offerings (IPOs) and the
Decision to List Stock in the United
States
CHAPTER 20: B. Shareholder Rights
FINANCIAL DECISIONS AND C. Mergers and Acquisitions
MANAGEMENT D. At The Market (ATM) Plans
I. Introduction VII. Other Topics in Financial Decisions
II. Capital Structure of a Company A. Tax Strategies
A. Optimal and Target Capital Structures B. Dividend Policy
B. T rade-Offs Between Financing with C. Repatriation of Capital for Multinational
Long-Term Debt and Common Stock Companies (MNCs)
C. Capital Structure Theory D. Market Analysis and Research Tools
D. Business and Financial Risk VIII. Summary
E. Target Capital Structure
F. O
 ther Considerations in the Capital
Structure Decision
G. Capital Structure in Not-For-Profit
Organizations
III. Raising and Managing Long-Term Capital
A. Raising Capital
B. Managing Outstanding Capital
IV. Cost of Capital and Firm Value
A. Capital Components and Costs
B. Cost of Debt
C. Cost of Common Equity
D. Weighted Average Cost of Capital (WACC)
E. Firm Value
V. Lease Financing and Management
A. Why Companies Lease
B. Types of Leases
C. Estimated Residual Value
D. Tax Considerations for Leases
E. Lease Versus Borrow to Buy Decision

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